Enforceability of Pre-Liability Waivers (“Exculpatory Clauses”)

Enforceability of Pre-Liability Waivers (“Exculpatory Clauses”)

Enforceability of Pre-Liability Waivers (“Exculpatory Clauses”) – Although Oklahoma looks upon liability waivers with a somewhat jaundiced eye, such waivers can be valid if a series of conditions are satisfied.

A. Main Cases and Limitations
The Oklahoma Supreme Court has a history of recognizing pre-liability waivers, also called exculpatory clauses, in certain circumstances. See, e.g., Schmidt v. United States, 1996 OK 29, 912 P.2d 871; Thomas v. Holliday, 1988 OK 116, 764 P.2d 165, 168, fn. 7, 8.  For the waiver to function as a release from liability, three general conditions must be satisfied:
(1) the intent to excuse one party from the consequences of his or her own negligence is expressed in clear, definite and unambiguous language,
(2) the agreement was made at arm’s length with no vast disparity of bargaining power between the parties, and
(3) the exculpation is not contrary to statute or public policy.
Manning v. Brannon, 1998 OK CIV APP 17, 956 P.2d 156, 158, publication ordered (Mar. 2, 1998); Schmidt, 912 P.2d at 874; Trumbower v. Sports Car Club of America, Inc., 428 F. Supp. 1113 (W.D. Okla. 1976) (applying Oklahoma law). The same analysis applies whether the claims to be waived involve injury or death. See Manning, 956 P.2d at 157 (involving release in case of injury or death).

1. The Clarity Requirement
To satisfy the first requirement, “a contractual provision excusing a party from liability must “clearly and cogently (1) demonstrate an intent to relieve that person from fault and (2) describe the nature and extent of damages from which that party seeks to be relieved.” Manning, 956 P.2d at 158 (quoting Schmidt, 912 P.2d at 874). In other words, “the clause must identify the tortfeasor to be released, the nature of the wrongful act, and the type and extent of damages covered.” Linda Wright v. W. Shamrock Corp., No. 13-CV-419-TCK-FHM, 2016 WL 4386038, at *2 (N.D. Okla. Aug. 17, 2016) (citing Schmidt, 912 P.2d at 874 and applying Oklahoma law).  In Manning, the plaintiff signed up for skydiving classes, and received six hours of training, which included reading a “detailed” exculpatory contract that required plaintiff to initial “in fourteen places” to indicate her understanding of the risks. 956 P.2d at 157. Key language explaining the potential consequences of waiving liability was written in all capitals. Id. In addition, the defendant required the plaintiff to watch a video in which an attorney explained the effect of the exculpatory clause. Id.
While the terms “knowing” and “informed consent” are not used, these ideas appear to lie at the heart of the court’s analysis. Manning also suggests that the detail of the waiver is tied to the nature of the activity. The more unusual the activity, the more explanation required to ensure a waiver is upheld.  In contrast, waivers have been held ineffective where the potential dangers are not adequately described, or where the waiver is executed at a time when the plaintiff could not be on notice of potential dangers. See, e.g., Burd v. KL Shangri-La Owners, L.P., 2003 OK CIV APP 31, ¶ 7, 67 P.3d 927, 929. In Burd, a “general, non-specific release of ‘any facility’” was held insufficient to shield the defendant resort from claims by a tennis player who “executed the waiver at the beginning of the tennis season, [when] she had no idea she would be playing league tennis at [defendant’s premises].” Id. The waiver did not “describe the nature and extent of damages from which [defendant]” later sought to be relieved, and was in fact signed before plaintiff’s tennis league had been formed. Id. Thus, plaintiff could not have anticipated she would be exposed to hidden dangers on the defendant’s premises at the time she signed the waiver. Id.

2. Bargaining Power
To assess relative bargaining power, courts have considered the nature of the parties (large regional corporation versus closely-held small company), as well as whether the plaintiff had alternative parties with whom it could bargain for services. See, e.g., Linda Wright v. W. Shamrock Corp., No. 13-CV-419-TCK-FHM, 2016 WL 4386038, at *3 (N.D. Okla. Aug. 17, 2016) (applying Oklahoma law). Courts may also consider whether signing the waiver was required to engage in an activity “necessary or important to a plaintiff’s wellbeing.” See, e.g., Holly Wethington v. Swainson, 155 F. Supp. 3d 1173, 1177 (W.D. Okla. 2015). “Where a party has free choice to obtain alternate services, bargaining power is relatively equal.” Linda Wright, 2016 WL 4386038, at *3 (quoting Ross v. Pub. Storage, No. CIV–13–758–C, 2014 WL 1276496, at *1 (W.D. Okla. Mar. 27, 2014)).

3. Violation of Public Policy
“Courts have identified two classes of exculpatory clauses which violate public policy: ‘(1) those which—if enforced—patently would tend to injure public morals, public health or confidence in the administration of the law, and (2) those which would destroy the security of individuals’ rights to personal safety or private property.’” See, e.g., Linda Wright, 2016 WL 4386038, at *3 (quoting Schmidt, 912 P.2d 875). “[C]ourts should void contract clauses on public-policy grounds ‘rarely, with great caution and in cases that are free from doubt.’” Id. (quoting Union Pacific R.R. Co., 591 F.3d at 1321 and Shepard v. Farmers Ins. Co., 1983 OK 103, 678 P.2d 250, 251).

B. Limitations on Waivers

1. Statutory Exception—No Release for Willful Injury
Liability waivers cannot release a party from willful or intentional wrong. Under 15 O.S. 1991, § 212, “All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another or violation of law, whether willful or negligent, are against the policy of the law.” See Manning, 956 P.2d at 160.

2. Parents May Not Ratify Waiver Signed by a Minor
Cases involving minors raise special concerns, as is generally the case in contract law. Anticipating how the Oklahoma Supreme Court might rule, the Western District of Oklahoma has held that liability waivers signed by minors are void, even if ratified by the parent. Holly Wethington v. Swainson, 155 F. Supp. 3d 1173, 1179 (W.D. Okla. 2015). The court noted, “Since a parent generally may not release a child’s cause of action after injury, it makes little, if any, sense to conclude a parent has the authority to release a child’s cause of action prior to an injury.” Id. (original emphasis) (quoting Scott v. Pacific West Mountain Resort, 119 Wash.2d 484, 834 P.2d 6, 11-12 (1992)). This decision was based in part on a survey of other jurisdictions, and an examination of 30 O.S. § 4–702, under which a parent or guardian may not settle a child’s claim without prior court approval. Id.

3. The Problem of State Involvement
When the State is a party to the contract, matters may be more complicated. In a 2001 opinion, the Oklahoma Attorney General issued an Opinion that described a limitation of liability clause in contracts between the State and a private party. Question Submitted by: The Honorable Stratton Taylor, Oklahoma State Senator, 2001 OK AG 2 (January 26, 2001) (“Additional considerations apply, however, when the State is one of the contracting parties.”). This opinion determined that “a State agency may not enter into a procurement contract limiting the liability of a private vendor, because a contingent obligation would arise for which no appropriation had been made, violating Article X, Section 23 of the Oklahoma Constitution.” Id.  More recently, in 2012, the Attorney General’s office revisited this issue and determined that the state could nevertheless enter into a contract with a private vendor that limited the damages the State seeks, because the contract did not create a legally enforceable obligation binding a future legislature to appropriate funds. Question Submitted by: The Honorable Brian Bingman, President Pro Tempore, 2012 OK AG 18 (October 23, 2012).  Furthermore, the Attorney General determined that exculpatory clauses do not violate Okla. Const. art. V, § 53, which prohibits releasing or extinguishing indebtedness, liabilities or obligations owed the State. Id. at ¶ 20. Because a “limitation of liability clause does not constitute a debt or obligation in the constitutional sense . . . this provision is not applicable to a limitation of liability clause.” Id. Such clauses are therefore not per se prohibited, but must be analyzed like private contracts on a case-by-case basis, to determine if they are in compliance with the general Oklahoma laws govering exculpatory clauses. Id.

By Jeremy Ward and Emily Pearson